Hill Town Motels has $5 million of debt outstanding with a coupon rate of 12%.Currently,the yield to maturity on these bonds is 14%.If the firm's tax rate is 40%,what is the after-tax cost of debt to Hill Town Motels?

Question

Quizplus · Accepted Answer

The after-tax cost of debt can be calculated as follows:
AT cost of debt = YTM*(1 - tax rate)
= 14%*(1 - 40%)
= 8.4%
Therefore, the correct answer is C.

Hill Town Motels Has $5 Million of Debt Outstanding with a Coupon